Q1 2020 Earnings Call
[music].
Ladies and gentlemen, thank you for standing by and welcome to the Q1 2020 <unk> earnings Conference call.
This time all participants on in listen only mode. After the speakers presentation, there would be a question and answer session.
Ask the questions on discussion you would need to press Star then one when your telephone.
If you acquire any further assistance. Please press Star then zero I would now like to hand, the conference over to your speaker for today.
Michael Mccann.
Decadent, Vice President and CFO, Sir you may begin.
Thank you Twanda good morning, everyone and welcome to cadence first quarter earnings call.
With me on the call today's Jeff, Paul, Our President and Chief Executive Officer.
Before we begin let me read our safe Harbor statement.
Various remarks that we may make today about cadence future plans and expectations financial and operating results and prospects are forward looking statements for purposes of the safe Harbor provisions under the private Securities Litigation Reform Act 1995.
These forward looking statements are subject to known and unknown risks and uncertainties that may cause our actual results to differ materially from these forward looking statements is resolved.
Various important factors, including those outlined at the beginning of a slide presentation and dose discussed under the heading risk factors in our annual report on form 10-K for the fiscal year ended December 20, Eightth 2019, and subsequent filings with the Securities and Exchange Commission.
In addition, any forward looking statements we made during this webcast represent our views on estimates only as of today.
While we may elect to update forward looking statements at some point in the future. We specifically disclaim any obligation do so even if our views are estimates change.
During this webcast we refer to some non-GAAP financial measures. These non-GAAP measures are not prepared in accordance with generally accepted accounting principles.
A reconciliation of non-GAAP financial measures at the most directly comparable GAAP measures is contained in our first quarter earnings press release and slides presented on the webcast and discussed in the conference call, which are available in the Investor section of our website at Www Dot came dotcom.
Finally, I wanted to know that when we refer to GAAP earnings per share or EPS and adjusted EPS on this call were referring to each of these measures as calculated on a diluted basis.
With that I'll turn the call over to Jeff Paul Who'll give you an update on cage business from future prospects.
Following Jeff's remarks, I'll give an overview of our financial results for the quarter and we will then have a Q and a session Jeff.
Bye.
Hello, everyone. Thank you for joining us this morning to review, our first quarter results and discuss our business outlook for 2020.
We had a strong start to the first quarter, but as the global pandemic took hold we saw deterioration in the general economic environment.
Before getting into the details of our Q1 performance I'd like to take a few minutes to update you on our operational response to cope with 19.
The rapid spread of Kovac from Asia to Europe, and the North America led to an incredible change in our operating environment and the global economy.
We like everyone else hasn't affected many ways. This pandemic.
Like other critical infrastructure industry partners. We worked first to provide a safe work environment for employees and then adapted our operations to continue serving our customers who are making life sustaining goods available to people around the world.
We are grateful for all of the official workers, who continue to perform their duties to help get us through this pandemic.
Specifically I'm grateful for our committed and resilient workforce of 2800 employees.
Who have performed exceptionally well under extremely challenging circumstances.
Thank you all for the work you've done and you continue to do.
We've only had one employee who has tested positive for coated virus and I'm pleased to report that person is now recovered as of today. The other employees in any of our locations have tested positive for the virus and all 20 of our manufacturing locations around the world are fully operational.
Our strong footing in China gave us an early insights and developed break, allowing us to better prepare our manufacturing facilities.
Apply chains and other regions.
We continue to take precautions to not only protect the health and safety over employees and their families but.
But also to continue to meet the needs of our customers and other business partners.
Most of our customers have continued their operations and many of our packaging tissue and food processing customers have experienced a surge in demand for their products.
We have continued to supply parts and other consumables as well as provide emergency services deeper customers critical machines running.
We're very proud of the role we're playing during this time the up our communities and we'll get through this difficult period.
As part of a regular contact with our key suppliers, we routinely assess potential for supply chain disruptions or material shortages that may affect us.
At this time, we believe any disruptions will be minimal.
We procured additional raw materials and components with longer lead times to ensure we can respond quickly to our customers needs.
Based on feedback from our customers and our internal Capex, we're meetings challenge.
As a company with market, leading brands and businesses going back well over 150 years, we take the long view.
We believe we are well positioned for potential long term social economic shifts that may result from this pandemic.
Our balance sheet remains healthy and our liquidity position is solid strong cash flows have always been a strength of cadence and we expect this will continue as economies began to reopen around the world.
Mike will discuss in more detail in his remarks.
Our first quarter financial performance came in as forecasted but was impacted by our customers request to delay projects and service work due to coven.
We experienced declines in revenue and bookings as expected compared to the record set in Q1 of 2019.
Our book to Bill ratio was a solid 1.1 in the first quarter and our backlog remains solid at 183 million at the end of Q1.
Our parts consumable revenue made up 66% of total revenue, which is the same percentages of prior year period.
Growth in our parts and consumables business continues to be a key strategic initiative and the relative stability of this revenue stream as reflected in our strong cash flows.
Many of our customers have been running at near 100% capacity since early March with little or no stoppage for repairs or maintenance.
It's our belief that as a travel restrictions ease repairs and maintenance upgrade had their postponed will proceed.
Our cash flow from operation was 6 million in the first quarter, which is typically impacted by the payments of our annual incentive program and this year was also impacted by settlement cost associated with ending of the supplemental benefit plan related to our recently terminated pension program.
Overall, our financial performance was good in the first quarter. Despite the progressive deterioration of global business conditions towards the ended the quarter.
Next I'd like to comment our new reportable operating segments that we announced last week.
Over the last several years, we've grown significant significantly grown our business and seen a transition from a heavy concentration in pulp and paper to broader industrial markets.
The shift has been strategic as we pursued aggressive organic growth initiatives in certain process industries and made acquisitions to expand our product portfolio and the markets we serve.
We realigned our operating segments to better reflect our strategic focus and to aid in communicating our strategy in growth story, three new segments, our flow control industrial processing and material handling.
The flow control segment includes our fluid handling and DCF product lines as are most diverse in terms of industry served.
While it's key markets include packaging tissue food in metals were also active and a variety of general industry sectors.
This operating segment had approximately 250 million in revenue in 2019, it has numerous growth opportunities via market penetration new market entry in acquisitions.
The industrial process is segment includes our stock preparation and wood processing product lines. This segment most closely linked to the forest products industry with a large installed base and recycled and Virgin paper Mills, Oh, let's be plants and saw mills.
Its primary end markets include packaging tissue wood products and alternative fuels.
This operating segment had revenue of approximately 300 million in 2019.
Our third operating segment is material handling.
This segment includes our conveying screening billing and fiber based products.
Like the flow control segment the material handling segment serves a diverse set of industrial and commercial sectors, including aggregate mining food processing pharma.
Waste management recycling, agriculture, and others were bulk and discrete material handling as required.
The segment had revenue of approximately 150 million in 2019.
Slide eight shown here illustrates our 2019 revenue as reported by product line and as recast based on the three new reporting segments.
You can see flow control made up approximately one third of total revenue, while industrial processing in material handling made up 42% and 22% respectively.
We believe the simplified and streamlined segmentation will better served investment community and our business leaders as we seek to clearly communicate our strategic growth initiatives and performance across our business.
With that introduction of our new operating segments I'd like to begin our Q1 business review with our flow control segment.
As shown on slide nine our flow control segment saw a decline in first quarter revenue of 7% to $57 million.
While demand for our aftermarket parts was solid and made up 69% of total revenue in the quarter customer requested delays and capital project execution and service work due to covert outbreak put downward pressure on our revenue performance.
On the other hand, adjusted EBITDA increased 2% to 15 million and we saw a nice improvement EBITDA margin to 26%.
Most customers we serve in this segment are designated as critical industry manufacturers and have continued their operations with enhanced safety protocols and limited supplier access.
Capital project activity slowed from the pacing in the early part of Q1, but we're still seeing projects move through the pipeline. Looking ahead, we expect Q2 to be soft on the servicing capital projects side, but expect our parts business to be relatively stable as customers continue to operate.
Our industrial processing segment faced steady headwinds in Q1 with the protracted shutdowns in China negatively impacting revenue and bookings during the quarter.
In addition, the historical record demand for capital equipment, we experienced in 2018 and 2019 for our wood processing products also makes for tough comparisons in 2020.
As a result revenue this segment was down 10% to 65 million in Q1 bookings were down 17%.
Our parts and some will bookings were solid and made up 72% of total bookings in the first quarter.
While project.
Capital project activity is moving forward, we are expecting some delays and uncertainty in the timing as result of covert 19, nearly all of our customers are designated as critical infrastructure manufacturers and our packaging and tissue customers in particular has seen a surge in demand.
Turning now to our material handling segment, while revenue and income were down slightly bookings were at an all time high at $42 million.
This was driven by increased demand for underground conveying systems used in various mining applications.
Adjusted EBITDA declined 4% to $7 million, our adjusted EBITDA margin was down modestly to just under 19% for the quarter.
Looking ahead, we believe this segment has an upside potential and its aggregates.
Market, if theres an increase infrastructure in spending.
In addition, we're seeing some evidence a stronger demand for our fiber based products used in lawn and garden products as more homeowners are under stay at home orders.
While the last six weeks have proven to be extremely challenging to navigate with many unknowns.
We remain confident our ability to manage through these unprecedented times and we will continue to be there for our customers.
As you look ahead to Q2 and the remainder of 2020, the uncertainty and rapidly evolving environment limited our visibility to accurately forecast the timing of orders and the speed of economic recovery.
Therefore, we have decided not to provide guidance for the second quarter and our withdrawing our full year guidance for 2020.
Okay, and if that along and tested history of strong cash flow generation and resilient. We will continue to focus on our strategic initiatives and are well positioned in the future.
I'd like to pass the call over to Mike for review of our Q1 performance now Mike. Thank you Jeff.
I'll start with some key financial metrics from our first quarter.
Slide 14 is a summary of some of the key financial metrics that I'll comment on over the next few slides.
Our diluted EPS was one dollarsnine, the first quarter up 14% compared to the first quarter of 2019, which included 28 cents.
Of acquisition related expenses.
Diluted EPS of $1.90 in the first quarter exceed the high end of our guidance range of 80 cents to $1.80.
We provided this large guidance range in February due to uncertainty surrounding the impact of coated 19 and our business.
We did experience shipping delays and some operational inefficiencies during the quarter due to coded 19, which started with the government mandated shutdowns at our Chinese operations.
Additionally, travel restrictions at times prevented us from connecting with customers and made servicing our customers challenging.
Consolidated margins were 42.9% in the first quarter of 2020.
170 basis points compared to 41.2% in the first quarter of 2019.
130 basis points of this increase was due to the negative effect from the amortization of acquired profit in inventory in the first quarter of 2019.
Consolidated gross profit margin increased 200 basis points sequentially in the first quarter 2020.
Due to a higher overall percentage of parts and consumables revenue, which represented 66% of revenue in the first quarter 2020 compared to 60% last quarter.
The increase was also driven by higher margins achieved on parts and consumables in the first quarter. This year.
SGN, a expenses were 45.6 million or 28.7% of revenue in the first quarter 2020.
Compared to $49.3 million or 28.8% of revenue in the first quarter 2019.
The decrease in SGN a expense included a 2.7 million decrease from unfavorable foreign currency translation effect and a 1.8 million decrease due to acquisition related SGN expenses in the first quarter of 2019.
Adjusted EBITDA decreased to 27.3 million or 17.1% or revenue compared to $30 million were 17.5% or revenue in the first quarter of 2019 as a result of lower revenue.
Operating cash flows were 6.2 million in the first quarter 2020, compared to 9.9 million in the first quarter of 2019.
We use 15.5 million of cash for working capital, which included the payment of annual performance incentive compensation.
And 2.4 million to settle a supplemental retirement plan at one of our us operations.
As we've noted in the past historically, the first quarter has been weak quarter for operating cash flows primarily due to the payment of annual performance incentive compensation.
We had several notable non operating uses of cash in the first quarter 2020.
We paid $2.7 million for capital expenditures pay down debt by 2.6 million.
Paid a 2.6 million dividend on our common stock.
And paid 2.3 million in tax withholding tax payments related to divesting a stock awards.
Free cash flows 3.5 million in the first quarter 2020, compared to 7.7 million in the first quarter of 29 team.
Let me next turn to our EPS results for the quarter.
In the first quarter 2020, both our GAAP and adjusted diluted EPS were $1.90.
And the first quarter 2019, GAAP diluted EPS was 96 cents and our adjusted diluted EPS was $1.24.
The 28 sent difference was due to acquisition related expenses.
As shown in the chart decrease of 15 cents, an adjusted diluted EPS in the first quarter 2020 compared to the first quarter 2019 consists of the filing.
34 cents due to lower revenue and one cents due to higher effective tax rate.
These decreases were partially offset by nine cents due to lower operating costs seven cents due to lower interest expense and four cents due to higher gross margin percentages.
Collectively included in other categories I, just mentioned was an unfavorable foreign currency translation effect of three cents in the first quarter 2020 compared to the first quarter of last year due to the strengthening of the U.S. dollar.
Looking at our liquidity metrics on slide 17, our cash conversion days, which we calculate by taking days in receivables plus days in inventory and subtracting days and accounts payable was 119 at the end of the first quarter 2020 compared to 110 at the end of the first quarter 29.
18.
This increase was driven by higher number of days in inventory.
Working capital as a percentage of revenue was 14.2% in the first quarter 2020 compared to 12.2% in the fourth quarter 2019, and 14.9% in the first quarter of 2019.
Our net debt that is debt less cash decreased 70 million or 23% to $233 million at the ended the first quarter 2020 compared to the first quarter of 29 team.
Our leverage ratio calculated in accordance with our credit facility decreased to 2.04 at the end of the first quarter 2020 compared to 2.33 in the first quarter 2019 due to the significant paydown of debt in the past 12 months.
At the ended the first quarter 2020, we had 141 million of borrowing capacity available under our revolving credit facility, which matures in December of 2023.
And we have access to an additional $150 million on committed borrowing capacity under this agreement.
Under our current outstanding debt facilities, we have less than 300000 of mandatory quarterly principal payments on our real estate loan.
Other than that we do not have any mandatory principal payments on our debt facilities until 2023.
We also have access to a 115 million of uncommitted borrowing capacity through the issuance of senior promissory notes under our note purchase agreement.
We believe that our cash on hand operating cash flows and access all available credit provide us with sufficient liquidity to meet our capital requirements and navigate this challenging environment.
Even though we were in a position to repay additional debt and continue our deleveraging efforts.
At the end of the first quarter duty uncertainty effects of coven 19 on our business and out of caution we chose to keep these funds in our bank accounts.
We have been conserving cash by reducing operating expenses, reducing capital expenditures, managing our working capital and suspending any voluntary principal payments for now on our long term debt.
We have continuously maintained a conservative financial profile as exhibited by the strength of our balance sheet and our bank leverage ratio, which was essentially consistent with the prior quarter at 2.0 for.
Regarding guidance the current environment has certainly made forecasting quite difficult.
We are experiencing delays in anticipated bookings due to a reduction in capital expenditures by our customers and expect continued customer requested delays related to certain capital projects in our backlog.
Given the current uncertainty and our inability to accurately forecast the timing of orders, we will not be providing guidance for the second quarter and our withdrawing the guidance for full year 2020, which we provided on our February earnings call.
We will review, we will reevaluate providing guidance next quarter.
While we're not providing guidance I would like to provide a few directional comments on our outlook for the year.
We anticipate the second quarter will be a very challenging quarter and will likely be our weakest quarter the year.
Our revenue for the year could decrease roughly 6% to 10% from our original estimate that we gave on our February earnings call.
I would like to note here that the recent strengthening the U.S. dollar has had a meaningful role in this estimated decrease.
Approximately a quarter of this expected decrease is attributed to the strengthening of the U.S. dollar.
A few other directional notes.
We would anticipate some pressure on gross margins as a result of the decrease in revenue and similarly, an increase in SGN as a percentage of revenue from our earlier guidance range.
On a positive note we would expect net interest expense decreased to nine to 9.5 million down a million from our previous guidance range.
In addition, we may delay certain capital expenditures to future periods, if weak market conditions persist and as a result capital expenditures could be in the $6 million to $8 million range down from our previous guidance of $12 million to $14 million.
We understand these are extremely uncertain times and as everyday art as every day, our team seems to learn something new.
Given the lack of visibility into what the future holds across our end markets and geographies, it's difficult to provide from guidance at the moment.
However, we believe our directional comments provide a deep deeper insight into the environment, we are seeing today.
And how our healthy balance sheet strong cash flows and recurring revenue streams helped position our business to navigate these new realities.
That concludes my review the financials and I'll now turn the call back over to be operator for our culinary session.
Operator, Thank you ladies and gentlemen, as a reminder, asked the question you would need to press Star then one on your telephone.
So with all your question first a turnkey.
Next I want to ask the question.
Please standby, while we compile the Q.
My first question comes from the line of course Ho with Barrington Research. Your line is open.
Good morning, Jeff and good morning, Mike.
Hi, Chris Foreign crest.
Good morning.
The various areas of interest here based on your comments thus far.
But I'll try to stick to a few key points here.
First starting with what you saw in parts and consumables in the first quarter.
I know guidance was withdrawn on a quarterly and on a yearly basis, but perhaps there is a little bit greater visibility.
Into the growth that you're seeing within parts and consumables.
Perhaps you can speak too.
What your outlook is on this generally speaking.
And some different positive drivers that you're seeing within parts and consumables on a segment level basis.
Well I think as you might imagine crested in certain sectors that are experiencing a surge and end demand and therefore, no our consider using more consumables and generating more more more natural replacement parts in particular, our customers that are serving the.
The tissue market in particular level at home tissue market, which is quite different from the way from Rome tissue market as well as our customers that are providing packaging that goes into the ecommerce sector and also the food sector as people shift for meeting healthy eating at home they buy food and small packages that are that are.
That are designed for home use and so that demand is up where restaurants and to get their pack their products in bulk. So we're seeing some customers that are having near record.
Demand for their products and they are there the consumables and parts are increasing for them.
One of the issues you often have as they can't take downtime.
As they normally blood to do some maintenance work, so theres always a little bit of a question on timing, but eventually they will have do you know they are there they're consuming they're consuming more of our parts and at some point in time, we'll have to take some downtime too.
We have others that sector.
So of course, they will they will consume less.
In the parts side. So it really is very very specific I think.
To our particular customers and that's pretty much the case I think across all of our geographic markets. You know everybody. There is that there has been a big of course kind of shift right.
And now living as everybody is kind of stayed at home and so the consumption has picked up.
For the at home products and it has declined for the way from loan products.
Is it appropriate to think that once we.
Hopefully sooner than later.
Good on our path towards recovery from this economic environments.
With these customers running at full capacity for an extended period of time.
That the recovery will be accelerated or led by.
Perhaps a snap back.
In parts and consumables as day service these missions.
Yes, I mean I think.
Well, we've always said at our parks and similar pretty much are a function of operating rates and all of our customers were operating now so to the extent. They continue to operate we think that will be the more stable of our of our business of course.
But they'll be there'll be two things that will probably happing people, who are delaying maintenance work and repair work right now will.
Well some point have to perform network and then people who are just running at a lower at a lower production level as that economies recover and that production level increases their consumption of parts will continue will increase also so we would expect to see kind of two two effects there one being.
As you say kind of us.
Snap back from the delays are taking place now for the customers that are busy and then just an increased consumption as people start to ramp back up production.
Thank you that's very helpful and one last question here just as it relates to what Mike discussed about the different methods of cash preservation that are being implemented for this fiscal year.
I have some color on that as it relates to.
How you might see that going into next year.
A lot of that depends on the pace of a recovery, but just thinking of that in light of your ongoing strategic objectives.
For potential candidates within the M&A opportunities.
Yes so.
You will add as and prudent right now.
Like most others have.
Okay.
Put measures in place too.
To conserve capital.
I would say.
Assuming that things.
Kind of overtime start over back up again, we'll probably.
Start to increase our capital expenditures as they were originally planned for production increases and operations improvements on the M&A side. That's that's an ongoing kind of a long term.
If you will.
Process, and we really havent.
We haven't put really any constraints and our people as far as looking at opportunities.
If we find the right opportunity and the good strategic fit for US we will I think we will continue to pursue that they tend to be long long term processes.
And so we really are.
Really kind of going full speed right, now and sourcing and discussing strategic fits within.
With no within our company right now.
I don't envision us changing that unless this thing was to get substantially worse for a very very.
Long duration.
That's very helpful. Thank you that's all I have for now and I'll hop back in Q.
Thank you.
Next question comes from the line of Walter Liptak with Seaport. Your line is open.
Hi, good morning, guys.
Hi, Paul.
I wanted to ask about the.
Comments, Jeff the made about.
The deterioration that happened and obviously, we're all.
I tried to deal with the same thing, but just to.
Maybe try and get a little bit better understanding how the of the backlog.
What percentage of the backlog or the projects in backlog got delayed.
And what our customers, saying.
Yes.
The problems are obvious but.
Are they sand pay hold off indefinitely or hold off until third quarter check back with us in the months like what are the conversations like.
Yeah.
So we had those a little over 6 million while that was.
Revenue of revenue that so it was in backlog that was delayed that that we're aware of that was delayed and those.
Delays are really have just spend to largely behind you quarters within 2020, So second quarter third quarter.
Some more delays caused by the coded issue in terms of logistics and solve more delays just on the ability.
Of the company purchasing the goods to put them in place and utilize them. Currently so I think on the on the booking side.
I think.
Some of their customers of course, just as we have started to to be a little more cautious and prudent and capital expenditures are customers have too. So I think on new capital projects.
We are seeing some caution there we've seen some announce reductions in planned capital expenditures for for the year.
And that will somewhat be a function of the particular market.
And the geography, so we're seeing some.
Stronger activity in some areas and weaker activity and others. So that will be probably based on markets and the geography as to how quickly.
We see no capital projects, starting this pull back up.
Okay, great and.
I Didnt hear too much about input especial cost cutting or are trying to two reduced levels of spending.
Yes, I wonder if you could just talk about that what you're what you're doing to mitigate this.
Deposits going on in the business.
Yes, sure. So obviously, Mike mentioned that we've reduced our our planned capital expenditures by by quite a bit.
We've also.
Our trying to control costs as you might imagine we're not spend a lot on traveling now so thats down.
Mike I think you had a list of things that.
I'd say you know I know you know as Jeff mentioned, Danny discretionary saw non essential travel meetings.
Of course, we're pulling back on that the other thing I'd mention Loftus Weve.
We try to staff our operations for kind of I Wouldnt say from for the peak, but more for even flow. So when we when demand increases we outsource components and we outsource some of the.
Labour also so we when things get soft we pull components back and we can manufacture in house and if you will that outside labor that we've contracted that's more of a flex labor pool that we can we can.
We move.
Yes, I mean as of right now load our business activity level was still.
Still strong enough that we don't envision.
Matt Furloughs layoffs or anything like that I mean, most of our customers were operating we're operating under albeit albeit challenging circumstances in some areas, but we're still in full operation and so.
As of today, we don't have plans for for major personnel reductions as those are our people are most critical asset as you know, they're very long tenured. Our people are much long time, they're very hard to find and the business conditions right now certainly would not warrant.
US having any.
A significant layoffs.
Okay. That's great other companies that we follow or are not in that book So.
That sounds great.
Maybe as the last one for me I Wonder with a new segments. If you could just update us.
On the long term growth rates for each one are they all about equal or do you expect that maybe one of the three new segments as could grow faster and then in terms of M&A opportunities within the three segments, which have the best opportunities.
The one of things that we like about our segments is it gives us some pretty broad diversity and so you'll notice that the right now the industrial processing side as well it was down a little more than the others but of course.
The the prior couple of years they were quite strong in fact of wood processing was was very strong and so we think we have some some nice diversification, which actually not only geographically, but within the markets, we serve which which we like that was kind of thats by by plan.
As far as.
As growth opportunities again, they vary somewhat I think the the acquisition side, we're looking at acquisitions in all three segments I would say we have opportunities you were following in discussions with let's companies in all three areas. The industrial side of course, which consist of our stock prep and our wood processing, that's a side that has very.
Very high market share.
So by definition, there is probably less acquisition opportunities and growth opportunities are not that there aren't any there are but it probably has lower has less opportunity because they have such very high market share to start with the other two segments flow control, which is a very very broad industry of course and the Mattel.
Handling sector I think.
Although we have nice market share is not quite as high they're big industries, and so theres, probably more growth opportunities and flow control and material handling just because of the size of the markets and our market share in those.
Okay, great. Thank you.
Thank you.
As a reminder, ladies and gentlemen, that's star one to ask the question.
I'm not showing any further questions at this time I would now like to turn the call two different Paul CEO for closing remarks.
Thank you operator before wrapping up the call today I just wanted to leave you with a few takeaways that gives me comfort and these uncertain times.
First cadence has a proven track record of cash flow generation and even during the worst of times, we continue to meet the needs of our customers employees.
And we're prepared to meet this present challenges head on.
Second our parts consumable business provides a relatively stable and profitable revenue stream that benefits from our large installed base around the world.
And third our liquidity position is solid and further enhance for our strong cash flow generation.
I want to thank you for joining the call today I look forward to updating you next quarter and please stay safe.
Thank you.
Ladies and gentlemen. This concludes today's conference. Thank you for your participation you may now disconnect everyone have a wonderful day.
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Ladies and gentlemen, thank you for standing by and welcome to the Q1.
2020, <unk> earnings conference call.
All participants on in listen only mode. After the speakers presentation, there would be a question and answer session.
The question going, especially if we need to press Star then one on your telephone.
If you acquire any further assistance. Please press Star then zero.
Now I'd like to hand, the conference over to your speaker for today.
Well Mccann.
<unk>, Vice President and CFO, Sir you may begin.
Thank you Twanda good morning, everyone and welcome to cadence first quarter earnings call.
With me on the call today's John Paul, Our President and Chief Executive Officer.
Well, we began let me read our safe Harbor statement.
Various remarks that we may make today about cadence future plans and expectations.
Financial and operating results and prospects are forward looking statements for purposes of the Safe Harbor provisions under the private Securities Litigation Reform Act 1995.
These forward looking statements are subject to known and unknown risks and uncertainties that may cause our actual results could differ materially from these forward looking statements as result of various important factors, including those outlined at the beginning first slide presentation and dose discussed under the heading risk factors in our annual report on form 10.
Okay for the fiscal year ended December 28, 2019, and subsequent filings with the Securities and Exchange Commission.
In addition, any forward looking statements we make during this webcast represent our views on estimates only as of today.
While we may elect to update forward looking statements at some point in the future. We specifically disclaim any obligation to do so even if our views are estimates change.
During this webcast we refer to some non-GAAP financial measures. These non-GAAP measures are not prepared in accordance with generally accepted accounting principles.
A reconciliation of non-GAAP financial measures most directly comparable GAAP measures is contained in our first quarter earnings press release and slides presented under Webcasts and discussed in the conference call, which are available in the Investor section of our website at Www Dot came dotcom.
Finally, I wanted to note that when we refer to GAAP earnings per share or EPS and adjusted EPS on this call were referring to each of these measures as calculated on a diluted basis.
With that I'll turn the call over to John Paul Who'll give you an update on cake business for future prospects.
Following Josh remarks, I'll give an overview of our financial results for the quarter and we will then have a QNX Sasha Jeff.
Mike Hello, everyone. Thank you for joining us this morning to review, our first quarter results and discuss our Dennis I'll look for 2020.
We had a strong start to the first quarter, but as a global pandemic took hold we saw deterioration in the general economic environment.
Before getting into the details of our Q1 performance I'd like to take a few minutes to update you on our operational response to cope with 19.
The rapid spread of Kovac from Asia to Europe, and the North America led to an incredible change in our operating environment and the global economy.
We like everyone else after the affected many ways this pandemic.
Like other critical infrastructure industry partners, we worked first to provide a safe work environment for our employees and then adapted our operations to continue serving our customers who are making life sustaining goods available to people around the world.
We are grateful for all the official workers, who continue to perform their duties to help get up to this pandemic.
Specifically I'm grateful for our committed and resilient workforce of 2800 employees.
You have performed exceptionally well under extremely challenging circumstances.
Thank you all for the work you have done and you continue to do.
We've only had one employee who has tested positive for covert virus and I'm pleased to report that person is now recovered as of today no. Other employees in any of our locations have tested positive for the virus and all 20 of our manufacturing locations around the world are fully operational.
Our strong footing in China gave us an early insights ended outbreak, allowing us to better prepare a manufacturing facilities.
Why change in other regions.
We continue to take the cautions did not unlike protect the health and safety ever employees and their families but.
But also to continue to meet the needs of our customers and other business partners.
Most of our customers have continue their operations and many of our packaging tissue and food processing customers experienced a surge in demand for their products.
We have continued to supply parts and other consumables as well provide emergency services due to our customers critical machines running.
We're very proud of the role we're playing during this time the up our communities in the real get through this difficult period.
As part of a regular contact with our key suppliers, we routinely assess potential for supply chain disruptions or material shortages that may affect us.
At this time, we believe any disruptions will be minimal.
We procured additional raw materials components, but longer lead times to ensure we can respond quickly to our customers needs.
Based on feedback from our customers and our internal <unk>, where medians challenge.
As a company with market, leading brands and businesses going back well over 150 years.
Take the Longview.
We believe we are well positioned for potential long term social economic shifts that may result from this pandemic.
Our balance sheet remains healthy and our liquidity position is solid strong cash flows have always been a strength of cadence and we expect this continue as economies began to reopen around the world.
Mike will discuss in more detail in his remarks.
Our first quarter financial performance came in as forecasted, but with impacted by our customers request to delay projects. The service work due to cope.
We experienced declines in revenue and bookings as expected compared to the record set in Q1 of 2019.
Our book to Bill ratio was a solid 1.1 in the first quarter and our backlog remains solid at 183 million at the end of Q1.
Our parts consumable revenue made up 66% of total revenue, which is the same percentage of the prior year period.
Growth in our parts and consumables business continues to be a key strategic initiative and the relative stability of this revenue stream as reflected in our strong cash flows.
Many of our customers have been running that near 100% capacity since early March with little or no stoppage for repairs or maintenance.
Our belief that as a travel restrictions ease repairs maintenance upgrade had their postponed will proceed.
Our cash flow from operation was 6 million in the first quarter, which is typically impacted by the payments of our annual incentive program. This year was also impacted by settlement cost associated with ending of the supplemental benefit plan related to our recently terminated pension program.
Overall, our financial performance was good in the first quarter. Despite the progressive deterioration of global business conditions towards the end of the quarter.
Next I'd like to comment our new reportable operating segments that we announced last week.
Over the last several years, we've grown significant significantly grown our business and seen a transition from a heavy concentration in pulp and paper to broader industrial markets.
The shift has been strategic as we pursued aggressive organic growth initiatives in certain process industries and made acquisitions to expand our product portfolio and the markets we serve.
We realigned our operating segments to better reflect our strategic focus and to aid in communicating our strategy and growth story, three new segments, our flow control industrial processing and material handling.
The full control segment includes our fluid handling and DCF product lines as are most diverse in terms of industry served.
Well its key markets include packaging tissue food and metals were also active in a variety of general industry sectors.
This operating segment had approximately 250 million in revenue in 2019, it has numerous growth opportunities via market penetration new market entry in acquisitions.
Industrial processes segment includes our stock preparation and wood processing product lines. This segment most closely linked to the forest products industry with a large installed base and recycled and Virgin paper Mills, Oh, let's be plants and saw mills.
Its primary end markets include packaging tissue, what product and alternative fuels.
This operating segment had revenue of approximately 300 million in 2019.
Our third operating segment is material handling.
This segment includes our conveying screening billing and fiber based products.
Like the flow control segment the material handling segment serves a diverse set of industrial and commercial sectors, including aggregate mining food processing pharma waste management recycling agriculture, and others were bulk indiscreet material handling as required.
The segment had revenue of approximately 150 million in 29.
Slide eight shown here illustrates our 2019 revenue as reported by product line and as recast based on the three new reporting segments.
You can see flow control made up approximately one third of total revenue, while industrial processing that material handling made up 42% and 22% respectively.
We believe the simplified and streamlined segmentation will better serve the investment community and our business leaders as we seek to clearly communicate our strategic growth initiatives and performance across our business.
With that introduction of our new operating segments I'd like to begin our Q1 business review with our flow control segment.
As shown on slide nine our flow control segment saw a decline in first quarter revenue of 7% 57 million.
Demand for aftermarket parts was solid and made up 69% of total revenue in the quarter customer requested delays in capital project execution as service work due to covert outbreak put downward pressure on our revenue performance.
On the other hand, adjusted EBITDA increased 2% to 15 million and we saw a nice improvement EBITDA margin to 26%.
Most customers. We serve this segment are designated as critical industry manufacturers and have continued their operations with enhanced safety protocols and limited supplier excess.
Capital project activity slowed from the pacing in the early part of Q1, but we're still seeing projects move through the pipeline. Looking ahead, we expect Q2 to be soft on the servicing capital project side, but expect our parts business to be relatively stable as customers continue to operate.
Our industrial processes segment faced steady headwinds in Q1 protracted shutdowns in China negatively impacting revenue and bookings during the quarter.
In addition historical record demand for capital equipment, we experienced in 2018 and 29 team for our wood processing products also makes for a tough comparisons in 2020.
As a result revenue this segment was down 10% to 65 million in Q1 bookings were down 17%.
Our parts and some will bookings are solid and made up 72% of total bookings in the first quarter.
Well project.
Capital project activity is moving forward, we are expecting some delays uncertainty and the timing as result of covert 19, nearly all of our customers are designated as critical infrastructure manufacturers and our packaging and tissue customers in particular has seen a surge in demand.
Turning now to our material handling segment, while revenue and income were down slightly bookings were at an all time high of 42 million.
This was driven by increased demand for underground conveying systems used in various mining applications.
Adjusted EBITDA declined 4% $7 million, our adjusted EBITDA margin was down modestly to just under a 19% for the quarter.
Looking ahead, we believe this segment has an upside potential and its aggregate.
Market, if there's an increase infrastructure and spend.
In addition, we're seeing some evidence a stronger demand for our fiber based products used in lawn and garden products as more homeowners are under stay at home orders.
Well the last six weeks have proven to be extremely challenging to navigate with many unknowns.
We remain confident our ability to manage through these unprecedented times and we will continue to be there for our customers.
As you look ahead to Q2 and the remainder of 2020, the uncertainty and rapidly evolving environment limit our visibility to accurately forecast the timing of orders and the speed of economic recovery.
Therefore, we decided not to provide guidance for the second quarter and our withdrawing our full year guidance for 2020.
Okay, if that along and test the history of strong cash flow generation and resilience. We will continue to focus on our strategic initiatives and are well positioned in the future.
I'd like to pass the call over to Mike for review of our Q1 performance now Mike. Thank you Jeff.
I'll start with some key financial metrics from our first quarter.
Slide 14 has a summary of some of the key financial metrics that I'll comment on over the next few slides.
Our diluted EPS was a dollar nine the first quarter up 14% compared to the first quarter of 2019, which included 28 sat.
Of acquisition related expenses.
Diluted EPS of $1.90 in the first quarter exceed the high end of our guidance range of 80 cents to $1.80.
We provided this large guidance range in February due to uncertainty surrounding the impact of covert 19 and our business.
We did experience shipping delays and some operational inefficiencies during the quarter due to coded 19, which started with the government mandated shutdowns at our Chinese operations.
Additionally, travel restrictions at times prevented us from connecting with customers and made servicing our customers challenging.
Consolidated margins were 42.9% in the first quarter of 2020 up 170 basis points compared to 41.2% in the first quarter of 2019.
130 basis points of this increase was due to the negative effect from the amortization of acquired profit and inventory in the first quarter of 2019.
Consolidated gross profit margin increased 200 basis points sequentially in the first quarter 2020.
To a higher overall percentage of parts and consumables revenue, which represented 66% of revenue in the first quarter 2020 compared to 60% last quarter.
The increase was also driven by higher margins achieved on parts and consumables in the first quarter. This year.
SGN, a expenses were 45.6 million or 28.7% of revenue in the first quarter 2020.
Compared to 49.3 million or 28.8% of revenue in the first quarter 2019.
The decrease in SGN a expense included a 2.7 million decrease from a favorable foreign currency translation effect and a 1.8 million decreased due to acquisition related SGN at expenses in the first quarter of 2019.
Adjusted EBITDA decreased to 27.3 million or 17.1% of revenue compared to $30 million were 17.5% of revenue in the first quarter of 2019 as a result of lower revenue.
Operating cash flows were 6.2 million in the first quarter 2020, compared to 9.9 million in the first quarter of 2019.
We use 15.5 million of cash for working capital, which included the payment of annual performance incentive compensation and.
And 2.4 million to settle a supplemental retirement plan at one of our us operations.
As we've noted in the past historically, the first quarter has been a week quarter for operating cash flows primarily due to the payment of annual performance incentive compensation.
We paid 2.7 million for capital expenditures pay down debt by 2.6 million.
Paid a 2.6 million dividend on our common stock and paid 2.3 million in tax withholding tax payments related to divesting stock awards.
Free cash flows 3.5 million in the first quarter 2020, compared to 7.7 million in the first quarter of 2019.
Let me next turn to our EPS results for the quarter.
The first quarter 2020, both our GAAP and adjusted diluted EPS were $1.90.
And the first quarter 2019, GAAP diluted EPS was 96 cents and our adjusted diluted EPS was $1.24.
The 28 cents difference was due to acquisition related expenses.
As shown in the chart the decrease of 15 cents, an adjusted diluted EPS in the first quarter 2020 compared to the first quarter 2019 consists of the filing.
34 cents due to lower revenue and one cents due to higher effective tax rate.
These decreases were partially offset by nine cents due to lower operating cost seven cents due to lower interest expense and four cents due to higher gross margin percentages.
Collectively included in other categories I, just mentioned was an unfavorable foreign currency translation effect of three cents in the first quarter 2020 compared to the first quarter of last year due to the strengthening of the U.S. dollar.
Okay.
Looking at our liquidity metrics on slide 17, our cash conversion days, which we calculate by taking days receivables plus days in inventory and subtracting days and accounts payable was 119 at the end of the first quarter 2020 compared to 110 at the end of the first quarter 2019.
This increase was driven by higher number of days in inventory.
Working capital as a percentage of revenue was 14.2% in the first quarter 2020 compared to 12.2% in the fourth quarter 2019, and 14.9% in the first quarter of 2019.
Our net debt that is debt less cash decreased 70 million or 23% to 233 million at the ended the first quarter 2020 compared to the first quarter 2019.
Our leverage ratio calculated in accordance with our credit facility decreased to 2.04 at the end of the first quarter 2020 compared to 2.33 in the first quarter 2019 due to the significant paydown of debt in the past 12 months.
At the ended the first quarter 2020, we had 141 million of borrowing capacity available under our revolving credit facility, which matures in December of 2023.
And we have access to an additional $150 million on committed borrowing capacity under this agreement.
Under our current outstanding debt facilities, we have less than 300000 of mandatory quarterly principal payments on our real estate loan.
Other than that we do not have any mandatory principal payments on our debt facilities until 2023.
We also have access to 115 million of uncommitted borrowing capacity through the issuance of senior promissory notes under our note purchase agreement.
We believe that our cash on hand, operating cash flows and access available credit provide us with sufficient liquidity to meet our capital requirements and navigate this challenging environment.
Even though we were in a position to repay additional debt and continue our deleveraging efforts.
At the end of the first quarter due to the uncertainty the effects of coven 19 on our business.
Out of caution we chose to keep these funds and our bank accounts.
We have been conserving cash by reducing operating expenses, reducing capital expenditures.
Managing our working capital and suspending any voluntary principal payments for now on our long term debt.
We have continuously maintained a conservative financial profile as exhibited by the strength of our balance sheet and our bank leverage ratio, which was essentially consistent with the prior quarter at 2.0 for.
Regarding guidance the current environment has certainly made forecasting quite difficult.
We are experiencing delays in anticipated bookings due to a reduction in capital expenditures by our customers and expect continued customer requested delays related to certain capital projects in our backlog.
Given the current uncertainty and our inability to accurately forecast the timing of orders, we will not be providing guidance for the second quarter and our withdrawing the guidance for full year 2020, which we provided on our February earnings call.
We will review, we will reevaluate providing guidance next quarter.
Well, we're not providing guidance I would like to provide a few directional comments and our outlook for the year.
We anticipate the second quarter will be a very challenging quarter and will likely be our weakest quarter the year.
Our revenue for the year could decrease roughly 6% to 10% from our original estimate that we gave on our February earnings call.
I would like to note here that the recent strengthening the U.S. dollar has had a meaningful role in this estimated decrease.
Approximately a quarter of this expected decrease is attributed to the strengthening of the U.S. dollar.
A few other directional notes.
We would anticipate some pressure on gross margins as a result of the decrease in revenue and similarly, an increase in SGN as a percentage of revenue from our earlier guidance range.
On a positive note we would expect net interest expense decreased to nine to 9.5 million down a million from our previous guidance range.
In addition, we may delay certain capital expenditures to future periods, if weak market conditions persist and as a result capital expenditures could be in the $6 million to $8 million range down from our previous guidance of $12 million to $14 million.
We understand these are extremely uncertain times and as everyday art as every day, our team seems to learn something new.
Given the lack of visibility into what the future holds across our end markets and geographies, it's difficult to provide from guidance at the moment.
However, we believe our directional comments provide a deep deeper insight into the environment. We are seeing today and how our healthy balance sheet strong cash flows and recurring revenue streams helped position our business to navigate these new realities.
That concludes my review the financials and I'll now turn the call back over to be operator for our Q in a session.
Operator, Thank you ladies and gentlemen, as a reminder, asked the question you would need to press Star then one on your telephone.
So withdraw your question.
Okay.
Again that start to ask the question.
Please standby, while we compile the Q.
Our first question comes from the line of Chris Ho with Barrington Research. Your line is open.
Good morning, Jeff Good morning, Mike.
Hi, Chris Martin crest.
Good morning.
That's very of areas of interest here based on the comments thus far.
Well I'll try to stick to a few key points here.
First starting with what you saw in parts and consumables in the first quarter.
I know guidance was withdrawn on a quarterly and on a yearly basis, but perhaps there is a little bit greater visibility.
Into the growth that you're seeing within parts and consumables.
Perhaps you can speak too.
What your outlook on this generally speaking.
And some different positive drivers that you're seeing within parts and consumables on a segment level basis.
Okay.
Well I think as you might imagine Chris certain sectors that are very penis surge and.
End demand and therefore.
We are using more consumables and generating more more more natural replacement parts in particular, our customers that are serving the.
The tissue market in particular level at home tissue market, which is quite different from the way from room tissue market as well as our customers that are providing packaging that goes into the ecommerce sector and also the food sector as people shift for meeting out eating at home they buy food and small packages that are that are.
They're designed for home use and so that demand is up where restaurants and to get their pack their products and bulk. So we're seeing some customers that are.
Having near record.
Demand for their products and there are there the consumables and parts are increasing for them.
One of the issues you often have as they can't take downtime.
As they normally blood to do some maintenance work, so theres always a little bit a question on timing, but eventually they will have to you know they are there they're consuming domain more of our parts and at some point in time, we'll have to take some downtime to do some maintenance and repairs and the we have other sectors that are executed on express a slowdown so of course they were.
Will they will consume less.
In the parts side. So it really is very very specific I think.
To our particular customers and that's pretty much the case I think across all of our geographic markets everybody. There is that theres been a big of course kind of shift right.
Living as everybody is kind of stayed at home and so the consumption has picked up.
For the at home products and it has declined further away from home products.
Is it appropriate to think that once we.
Hopefully sooner than later.
Good on our path towards recovery clubs economic environments.
With these customers running at full capacity for an extended period of time.
But the recovery will be accelerated or led by.
Perhaps a snap back.
In parts and consumables as they service these machines.
Yeah, I mean I think.
Well, we've always said at our parks and similar pretty much are a function of operating rates and all of our customers are operating now so to the extent. They continue to operate we think that will be the more stable of our of our business of course.
But there will be there'll be two things, probably happing people, who are delaying maintenance work and repair work right now will.
Well some point have to perform network and then people who are just running at a lower at a lower production level as that economies recover and that production level increases their consumption of parts will continue to increase also so we would expect to see kind of two two effects there one being.
As you say kind of us.
Snap back from the delays are taking place now for the customers that are busy and then just an increased consumption as people start to ramp back up production.
Thank you Thats very helpful and one last question here just as it relates to what might discussed about the different methods of cash preservation that are being implemented for this fiscal year.
Perhaps some color on that as it relates to.
How you might see that going into next year.
A lot of that depends on the pace of a recovery, but just thinking of that in light of.
Go in strategic objectives.
For potential candidates within the M&A opportunities.
Yes so.
You will add as prudent right now.
Like most others have.
Put measures in place too.
To conserve capital.
I would say.
Assuming that things.
Kind of overtime start to open back up again, we'll probably.
Start to increase our capital expenditures as they were originally planned for production increases and operations improvements on the M&A side. That's that's an ongoing kind of a long term.
If you will.
Process, and we really havent.
We haven't put really any constraints on our people as far as looking at opportunities.
If we find the right opportunity and it's a good strategic fit for US we will I think we will continue to pursue that they tend to be long long term processes.
And so we really are.
Really kind of going full speed right, now and sourcing and discussing strategic fits within.
Within our company right now.
I don't envision us changing that and that's the thing was to get substantially worse for a very very.
Long duration.
That's very helpful. Thank you that's all I have for now and I'll hop back in Q.
Okay.
Thank you.
Our next question comes from the line of Walter Liptak Whats Seaport. Your line is open.
Hi, good morning, guys.
Hi, Paul.
Wanted to ask about the.
The comments, Jeff the made about.
The deterioration that happened and obviously well.
I tried to deal with the same thing, but just to tick.
Maybe trying to get a little bit better understanding.
The of the backlog.
What percentage of the backlog or the projects in backlog got delayed.
And what our customers, saying.
Like.
The problems are obvious but.
Are they sand pay hold off indefinitely or hold off until third quarter checked back with us in a months like what are the conversations like.
Yes.
So we had those a little over 6 million while that was.
Revenue of revenue that so it was in backlog that was delayed that that we're aware of that was delayed and those.
Delays are really have just spend to largely behind you quarters within 20 twice, so second quarter third quarter.
Some more delays caused by the co hit issue in terms of logistics and solve more delays just on the ability.
The.
Company purchasing.
Goods to put them in place and utilize them currently so I think on the on the booking side.
I think.
Some of their customers of course this as we have started to to be a little more cautious and prudent and capital expenditures are customers have too. So I think our new capital projects.
We are seeing some caution there we've seen some announce reductions in planned capital expenditures for for the year.
And that will somewhat be a function of the particular market.
And the geography, so we're seeing some.
Stronger activity in some areas and weaker activity and others. So that will be probably based on markets and the geography as to how quickly.
We see.
Capital projects, starting this pull back up.
Okay.
Okay, great and.
Yes, I didnt hear too much about any kind of especial cost cutting or trying to two reduced levels of spending.
Yes, I wonder if you could just talk about that what you're what you're doing to mitigate this.
Paused, that's going on in the business.
Sure. So obviously as Mike mentioned that we've reduced our.
Our planned capital expenditures by by quite a bit now we've also.
Our trying to control costs as you might imagine we're not spending a lot on traveling now so thats down.
Mike I think you had a list of things that.
I would say you know on.
As Jeff mentioned, Danny discretionary saw nonessential travel meetings.
Of course, we're pulling back on that the other thing I'd mention Walt as Weve.
We try to staff our operations for.
I Wouldnt say from for the peak, but more for even flow. So when we when demand increases we outsource components and we outsource some of the.
Labour also so we when things get soft we pulled components back and we can manufacture and house and if you will that outside labor that we've contracted that's more of a flex labor pool that we can we can.
Remove.
Yes, I mean as of right now load our business activity level was still.
Still strong enough that we don't envision.
[music].
Matt furloughs or layoffs or anything like that I mean, most of our customers are operating.
We're operating under albeit.
Albeit challenging circumstances in some areas, but we're still in full operation and so.
As of today.
Don't have plans for for major personnel reductions as those are our people are most critical asset as you know, they're very long tenured. Our people are much long time, they're very hard to find and the business conditions right now certainly would not warrant.
US having any.
Significant layoffs.
Okay. That's great other companies that we follow or are not in that book So.
That sounds great.
Maybe as the last one for me I Wonder with a new segments. If you could just update us.
On the long term growth rates for each one are they all about equal or do you expect that maybe one of the those three new segments is could grow faster.
And then in terms of M&A opportunities within the three segments, which have the best opportunities.
The one other things that we like about our segments is it gives us pretty broad diversity and so you'll notice that the right now the industrial processing side as well it was down a little more than the others but of course.
The prior couple of years, they were quite strong in fact of wood processing was very strong and so we think we have some some nice diversification, which actually not only geographically, but within the markets, we serve which which we like that was kind of thats by by plan as far as.
As growth opportunities again, they vary somewhat I think the the acquisition side, we're looking at acquisitions in all three segments I would say we have opportunities you were following and discussions with with companies in all three areas. The industrial side of course, which consist of our stock prep and our wood processing, that's a side that has.
Very very high market share.
And so by definition, there is probably less acquisition opportunities and growth opportunities, they're not that there aren't any there are but it probably has lower has less opportunity because they have such very high market share to start with the other two segments flow control, which is a very very broad industry of course and the Mattel.
Hamlin sector I think.
Although we have nice market shares not quite as high they're big industries, and so there's probably more growth opportunities and flow control in material handling just because of the size of the markets and our market share in those.
Okay, great. Thank you.
Thank you.
As a reminder, ladies and gentlemen that star one to ask the question.
I'm not showing any further questions at this time I will now like to turn the call to gently Paul CEO for closing remarks.
Thank you operator before wrapping up the call today I just wanted to leave you with a few takeaways that gives me comfort is uncertain times.
First cadence has a proven track record of cash flow generation and even during the worst of times, we continue to meet the needs of our customers employees.
And we are prepared to meet this present challenges head on.
Second our parts consumable business provides a relatively stable and profitable revenue stream that benefits from our large installed base around the world.
And third our liquidity position is solid and further enhance by our strong cash flow generation.
I want to thank you for joining the call today I look forward to updating you next quarter and please stay safe.
Thank you.
Ladies and gentlemen. This concludes today's conference. Thank you for your participation you may now disconnect everyone have a wonderful day.